Q: According to the accounting equation, which of the following is correct?

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Question 1

Which of the following best describes the primary objective of financial accounting?

Accepted Answer

To provide useful information for making financial decisions

Question 2

Which of the following is NOT one of the four fundamental financial statements required by GAAP?

Accepted Answer

Statement of Budgeted Expenses

Question 3

According to the accounting equation, which of the following is correct?

Accepted Answer

$$	ext{Assets} = 	ext{Liabilities} + 	ext{Equity}$$

Question 4

Which qualitative characteristic of accounting information is enhanced when two independent accountants arrive at similar values for the same item?

Accepted Answer

Verifiability

Question 5

A company purchased equipment for $50,000. According to the historical cost principle, at what amount should the equipment be recorded on the balance sheet?

Accepted Answer

$50,000

Question 6

Which of the following best describes the 'going concern' assumption?

Accepted Answer

The company will continue to operate for the foreseeable future

Question 7

Which financial statement would you use to determine how much profit a company earned during a specific period?

Accepted Answer

Income Statement

Question 8

If a company has assets of $$300,000 and liabilities of 120$$,000, what is its equity?

Accepted Answer

$180,000

Question 9

Which of the following transactions would NOT affect the retained earnings of a company?

Accepted Answer

Issuing common stock to investors

Question 10

Which principle requires that expenses be recorded in the same period as the revenues they help to generate?

Accepted Answer

Matching Principle

Question 11

A company reports the following: Revenues = $$500,000, Expenses = 350$$,000, Gains = $$20,000, Losses = 10$$,000. What is the net income?

Accepted Answer

$160,000

Question 12

Which of the following is an example of a liability?

Accepted Answer

Accounts Payable

Question 13

Which enhancing qualitative characteristic is improved when a company uses the same accounting methods from year to year?

Accepted Answer

Consistency

Question 14

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To show the sources and uses of cash during a period

Question 15

If beginning retained earnings are $$100,000, net income for the year is 40$$,000, and dividends declared are $10,000, what is the ending retained earnings?

Accepted Answer

$130,000

Question 16

Which of the following is an example of an asset?

Accepted Answer

Accounts Receivable

Question 17

Which principle requires that all information that could affect users’ decisions be reported in the financial statements or notes?

Accepted Answer

Full Disclosure Principle

Question 18

A company’s cash flow statement shows positive cash flows from operating activities, negative cash flows from investing activities, and positive cash flows from financing activities. What might this indicate?

Accepted Answer

The company is generating cash from operations, investing in assets, and raising funds through financing

Question 19

Which of the following best describes 'materiality' in accounting?

Accepted Answer

Information is material if omitting or misstating it could influence decisions

Question 20

Which of the following is NOT a required element of faithful representation?

Accepted Answer

Timeliness

Chapter 1: Conceptual Framework and Financial Statements – Study Notes

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Study Guide - Flashcards